2026-06-19 21:02:45
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SpaceX just pulled off the largest IPO in history. The rocket maker was priced at a fixed $135 per share on June 12 and surged more than 50% in its first three days of trading, briefly touching an astounding $2.6 trillion valuation.
More are on the way. Anthropic and OpenAI filed confidentially earlier this month. The most valuable private companies on earth are racing toward public markets.
The temptation to invest is obvious.
These are the companies investors have been waiting years to own: rockets, AI models, frontier labs, category leaders. The kind of names that can make every other stock in your portfolio feel boring.
But there’s an old market joke that IPO stands for “It’s Probably Overpriced.”
The hotter the IPO, the more erratic the early trading can become.
Should you take the plunge?
Four decades of IPO history point to a boring answer: probably not yet.
Today at a glance:
📉 The IPO pop mirage
📊 What 40 years of data say
🧭 The five-rule playbook for IPOs
🚀 SpaceX, OpenAI, or Anthropic?
The IPO pop you read about in the headlines is almost never yours.
The offering price and the opening price are two different numbers. In most hot IPOs, individual investors pay the second one.
That gap is often celebrated as a successful IPO. But it also means the company could likely have sold shares at a higher price. The first-day upside went to whoever received an allocation, not to the business or most public investors.
In traditional IPOs, banks often underprice the deal, allocated investors capture the first-day pop, and the company effectively eats the difference. Most individual investors buy in the open market after the pop.
That difference can be extremely short-lived. Rivian priced its IPO at $78, closed its first day at $101, and kept climbing. A week later, it hit $172, up 70%, making it briefly the third-most-valuable automaker on the planet, ahead of Ford and GM. In retrospect, it was the peak. The stock is down more than 80% from that first-day close, near $16 today.
Cerebras priced its AI listing at $185 and closed its first day at $311, up 68%. Spectacular for whoever got the allocation. Much less helpful for anyone buying after the move, when the valuation already reflected the excitement. A month later? The stock is nearly 30% off its peak.
A monster pop is not necessarily a triumph. Sometimes it is simply a temporary mispricing, and the buyer at the open is on the wrong side of it.
SpaceX tried to make the process fairer. It skipped the usual book-building theater and reserved an unusual 30% of the deal for individual investors.
The stock rose more than 50% in its first three days of trading anyway. The valuation now reflects even more future success than the IPO price did, leaving less room for error for new investors.
Takeaway: The first-day spike is usually a transfer of wealth to people who are not you. The smaller the pop, the fairer the deal. But a fairer price and a good investment are not the same thing.
IPOs tend to underperform. And by a lot.
Why? IPO investing has three built-in disadvantages:
Limited operating history: The S-1 shows the past, not how the company behaves under public-market pressure.
Insider selling: Lock-ups often expire after ~6 months, when employees and early investors can finally sell.
Information edge: The best investors often saw the company years earlier, at much lower valuations, with better access.
Jay Ritter has tracked new listings for decades. The University of Florida finance professor built one of the definitive IPO datasets.
Across thousands of operating-company IPOs with at least $100 million in sales, measured from the first-day close, the five-year record is sobering:
50% posted negative returns over the five years after their first-day close.
30% lost half their value or more.
Only 24% became multi-baggers, meaning they gained 100% or more.
This data excludes the smallest IPOs, those with less than $100 million in trailing sales. Including those would make the record look even worse, but also less relevant to the kind of large, category-defining companies most investors care about.
Finishing above the first-day close is not the same as beating the market. A stock that rises 20% over five years may look fine in isolation, but it still failed as an allocation if the S&P 500 did much better over the same period.
That’s why IPO researchers also look at market-adjusted returns. On that basis, the IPO record is even less forgiving. Larger IPOs do much better than tiny speculative listings, but on average, they still underperform comparable public companies after the first-day pop.
The damage clusters in a specific window: IPOs lag comparable companies most from 6 to 24 months after listing, around the time the lock-up expires and insiders are finally allowed to sell.
As the novelty fades and the selling pressure lands, expectations come back to earth, and so does the price.
If we expand to a 3-year window, several patterns show up again and again in Ritter’s 40-year data set:
Size matters: IPOs with under $100M in sales trailed the market by ~34%, while those with over $500M in sales trailed by just ~4%.
Profitability helps: Profitable issuers underperformed by ~13%, while unprofitable ones underperformed by ~31%. None of the megacaps heading for IPOs are profitable.
VC backing boosts the odds: Venture-backed names trailed by ~14% — better than the ~25% for everyone else, but still behind.
Takeaway: A new listing is usually a stock priced for the long-term growth story, at the time of maximum execution risk. Time separates the winners from the wreckage. Buying a great business can be sound, but the IPO is often the worst moment to do it.
Warren Buffett has long been skeptical of IPOs. His view is simple: IPOs come to market when sellers choose the timing, not when buyers are likely to get the best deal. He once put it bluntly:
“It isn’t worth spending five seconds thinking about IPOs.”
Of course, an IPO is merely a moment in time, not an asset class. What looks uninvestable at the IPO price can eventually become a compelling idea.
That’s why having a clear process matters.
Here are a few rules I’ve created for myself:
Avoid the IPO hype: The first-day pop mostly belongs to investors who received the allocation, not to open-market buyers. Rushing in on Day 1 forces you to pay a hype-driven premium at the moment of maximum risk. The rule is simple: let the initial open-market volatility pass without touching it.
Wait for the second earnings call: The S-1 is a snapshot. Public markets are the test. The first earnings call shows how management talks to investors. The second shows whether they can forecast appropriately. Are the right KPIs improving? Is growth accelerating or decelerating? Did guidance hold? Did the lock-up create selling pressure? Two quarters help draw a trendline. Anything earlier is closer to buying blind.
Nibble in year one: The first year is usually the noisiest. The stock is absorbing new shareholders, lock-up expirations, analyst coverage, guidance resets, and the first real tests of public-market expectations. A small starter position lets you follow the company closely without making the IPO price your entire cost basis. If a 50% drawdown would damage your portfolio or your sleep, the position is too big.
Anchor to valuation: Missing a 20% move is not a disaster. Buying a great company at a price that already assumes perfection can be. The question is not whether the company is exceptional. It is whether the valuation leaves room for error. Don’t sweat daily movements; instead, focus on valuation relative to fundamentals.
Give it time: Many great stocks go nowhere in their first few years as public companies. That doesn’t mean the business is broken. It means the market is still figuring out the right multiple, the right expectations, and the right shareholder base. Multi-baggers rarely require buying on day one. They require surviving the early volatility.
Takeaway: The playbook is boring on purpose. Wait for public evidence, size small, and let the lock-up cycle pass. Boring is how you beat the IPO base rates.
Neither of the new-frontier IPOs has demonstrated how the business behaves under public-market pressure. Their margins at maturity are still uncertain, and their future growth is far from guaranteed.
None of this means the companies are bad. It means the setup is hard.
These may become some of the defining franchises of the next decade. The case for owning the leaders of AI and space is real. But the case for owning them on the first day, at peak-euphoria valuations, before a single public quarter, is much weaker.
The better move is boring: put them on your watch list.
Let them report. Let the first wave of excitement pass. Let insiders sell. Let expectations move from story to numbers. Then decide whether the business is getting stronger and whether the valuation leaves room for error.
Some of these stocks may compound for a decade. The playbook is not to ignore them entirely. It’s to invest on your own terms, at a price set with a clearer head.
Bottom Line: The 2026 IPO wave is a readout of how hot the market has become, not a buy signal. SpaceX, OpenAI, and Anthropic belong on the watch list, not the impulse-buy list. The best businesses give you years to get in. The IPO only sells you the urge to rush.
Once Anthropic and OpenAI’s S-1s are available, you can expect our breakdowns and signature visuals. Stay tuned for that!
That’s it for today!
Happy investing!
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Disclosure: I own ABNB, BABA, CPNG, DASH, META, SNOW, and UBER in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-06-16 20:01:07
Welcome to the Premium edition of How They Make Money.
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In case you missed it:
SpaceX just pulled off the largest IPO in history, raising about $75 billion at a valuation near $1.8 trillion. The stock has already surged more than 40% in its first two days, pushing its market cap past $2.5 trillion, nearly as much as Amazon.
But it was only the opening act.
Anthropic and OpenAI have already filed confidentially to go public, setting the stage for massive IPOs in the coming months. Both could list above $1 trillion.
Anthropic’s private valuation has rocketed past OpenAI’s to $965 billion, making the Claude maker, on paper, the most valuable standalone AI lab on earth.
But the company just got a reminder of how fragile that value can be. On Friday, Anthropic received a US export-control directive restricting access to its two most powerful models. Because it could not screen users in real time, the company disabled both models worldwide.
Every major AI company is choosing where to sit on the build-vs-rent spectrum:
Build a frontier model like Anthropic, OpenAI, and Google.
Rent one from a company that already has.
Until last week, that looked mostly like a trade-off between cost and control. Now there’s another variable: the risk of regulatory shutdown.
Today at a glance:
The frontier’s very bad week
Why building just got riskier
Apple’s accidental hedge
2026-06-13 22:02:26
Welcome to the Saturday PRO edition of How They Make Money.
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📊 Monthly reports: 200+ companies visualized.
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Today at a glance:
☁️ Oracle: Backlog vs. Balance Sheet
🎨 Adobe: Freemium Bet
✍️ DocuSign: IAM Crosses 13% of ARR
🎿 Vail Resorts: Worst Season On Record
🐶 Chewy: Stretched But Steady
Oracle beat on revenue, beat on earnings, and grew its backlog by $85 billion during the quarter to $638 billion. The stock fell 12% anyway, its worst day since December.
The quarter wasn’t the problem. The incoming bill was. New CFO Hilary Maxson guided FY27 gross margins to “step down” and laid out ~$70 billion in net cash outlay, partly funded by a fresh ~$40 billion raise. Investors naturally scrutinize the cost of converting that backlog.
Revenue grew 21% Y/Y to $19.2 billion ($0.1 billion beat). Oracle Cloud Infrastructure (OCI) remains the main driver:
☁️ Cloud +47% Y/Y to $9.9 billion (OCI +93% to $5.8 billion).
🌐 Software -2% Y/Y to $6.8 billion.
🖥️ Hardware +9% Y/Y to $0.9 billion.
💼 Services +13% Y/Y to $1.5 billion.
Margin trends: The operating margin remained flat at 32%, while gross margin compressed by 5pp to 65% as lower-margin IaaS scaled.
Cash flow: For the full year FY26, operating cash flow was $32 billion (+54% Y/Y), but that’s not enough to fund the CapEx ramp. Free cash flow stayed deeply negative (-$24 billion) as CapEx hit $56 billion, above the $50 billion plan.
Balance sheet: Oracle raised $43 billion in debt and $5 billion in equity in FY26 and expects another ~$40 billion in debt and equity financing in FY27. Oracle now has a net debt of $124 billion, including operating lease liabilities.
FY27 guidance: Management reaffirmed FY27 revenue guidance of ~$90 billion, implying ~34% growth. Capital spending is expected to reach roughly $70 billion of Oracle’s own cash outlay. Oracle expects to raise about $40 billion through debt and equity, with any new debt likely pushed to calendar 2027.
📈 The beat the market ignored: RPO jumped 363% Y/Y and 15% Q/Q to $638 billion, well above the ~$590 billion analysts expected. But the market has stopped paying for backlog alone and started pricing the cost of delivering it.
⚖️ Less funding pressure, still massive funding needs: Roughly $75 billion of Oracle’s large AI contracts is prepaid or customer-supplied hardware. That helps. But FY27 capital outlays are still enormous, and Oracle still needs external financing. The funding story improved at the margin. The absolute numbers got bigger.
📉 Margins are the new fault line: Oracle is building capacity before it fully bills. That creates a timing gap: CapEx now, revenue later. Management says infrastructure margins recover quickly once utilization ramps, but investors want proof.
🧱 The old Oracle is now shrinking: Software revenue fell 2% Y/Y. Oracle still needs that legacy cash engine to help fund the AI infrastructure buildout, and a contracting base makes the math harder.
Takeaway: Oracle delivered 1.2 gigawatts of incremental data center capacity in FY26 and expects Q1 FY27 delivery to approach 1 gigawatt. The bull case is becoming more concrete, but so are the capital intensity, margin pressure, and financing needs. Oracle is now a bet on execution.
2026-06-12 20:03:53
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Hosted by Canada, Mexico, and the US, the competition kicked off Thursday. It’s the first one expanded to 48 teams. FIFA president Gianni Infantino calls it "104 Super Bowls in a month" (it's actually 39 days, but who's counting).
This year's teams will share a record $871 million in prize money, while some fans pay as much as $33,000 for a single seat.
Across this World Cup cycle, FIFA expects to take in roughly $13 billion. As a non-profit, most of that money is supposed to flow back into football: staging tournaments, funding member federations, and running the global game.
Today at a glance:
💰 The Four-Year Heartbeat
🌍 Where The Money Goes
🎟️ Pricing the People's Game
Because FIFA’s business revolves around the World Cup, held once every four years, the organization uses a four-year budget cycle.
The visual below shows the latest budget for the 2023-2026 cycle.
FIFA expects to earn $13 billion in this cycle, up 72% from $7.6 billion for the 2019-2022 Qatar cycle. That’s a big upside from the $11 billion it had previously budgeted.
The jump came from three places:
The field expanded to 48 teams (more inventory to sell).
The tournament landed in the US (the richest media market on earth).
FIFA bolted on a second large event in the US, the revamped Club World Cup.
Here’s where the revenue comes from:
📺 TV Broadcasting ($5.3 billion, ~40%): FIFA’s largest stream by far. It sells the right to air the matches to networks region by region, and the bidding runs hot because few events deliver a global audience watching live, all at the same time.
🎟️ Hospitality & Ticketing ($3.6 billion, ~28%): Match tickets plus premium corporate packages, run through a FIFA-owned subsidiary so every dollar flows straight back to headquarters. 2026 is the first World Cup with dynamic, demand-based pricing, which sent the top end soaring (more on this in a minute).
🤝 Marketing & Sponsorship ($3.3 billion, ~25%): The deals brands like Coca-Cola, Visa, and Adidas pay to attach their name to the tournament, sold in tiers from global partners down to regional supporters. Sponsors spend several times more on advertising, though that money goes to agencies and broadcasters, not FIFA.
🏷️ Licensing ($0.4 billion, ~3%): FIFA-branded merchandise, video games, and royalties on the FIFA name. Tiny next to the rest, and almost a rounding error.
FIFA runs a deficit three years running, then the World Cup arrives and pays for everything — nearly $9 billion in a single year. The Club World Cup debut in 2025 also created a revenue boost. The lumpiness is the design, with a budget built with that timeframe in mind.
Takeaway: For a non-profit, near-breakeven is the whole point. The cycle is engineered to look like FIFA reinvests almost everything. Which raises the real question: where does the money actually go?
Almost none of that $13 billion stays with FIFA, and that is the entire point.
The 2026 World Cup is unusually asset-light for FIFA. Every match will be played in an existing stadium, many of them NFL venues. Unlike Qatar’s reported $200 billion buildout, the tournament does not require a countrywide stadium construction boom. More of the revenue can flow back into football.
Here’s where it goes:
🏟️ Competitions & Events ($7.6 billion, ~58%): The largest line by far. This is the cost of staging the tournaments themselves: running the World Cup and FIFA’s other events, including the prize money paid to teams.
🌱 Development & Education ($3.9 billion, ~30%): The money FIFA puts back into the game. Through its FIFA Forward programme ($2.25 billion of it), FIFA funds all 211 member federations: pitches, youth programs, and grants in places the commercial market overlooks.
🏛️ Governance & Admin ($0.9 billion, ~7%): FIFA’s own running costs. Salaries, governance bodies, and the day-to-day expenses of operating the organization itself. That includes the compensation package of roughly $6 million annually for FIFA President Gianni Infantino.
The World Cup Prize money pool is $871 million for 2026, including $655 million allocated to performance, a 49% increase over Qatar, with the champion taking home $50 million and even the first team eliminated leaving with over $10 million. The expansion of the competition from 32 to 48 teams was the main reason behind the increase.
Every member federation that receives a check also has a vote for the FIFA president. Infantino won in 2016 partly by promising to more than double those grants. He runs for a fourth term in 2027. Critics see a patronage machine. FIFA calls it growing the game.
In 2015, US prosecutors charged dozens of officials and sports-marketing executives over more than $200 million in bribes, almost all of it paid for the media and marketing rights to FIFA's tournaments. That history matters because media and marketing rights are still FIFA’s two largest revenue engines. The same machine that funds football also asks the world to take its redistribution on trust.
The books are built to break even on paper. But when revenue routinely beats budget, the surplus compounds into a reserve now approaching $2.7 billion.
Takeaway: FIFA runs a redistribution machine mixing sports and politics. The same dollars that grow the game secure the votes that keep the machine and its president in place. No rival governing body has built a flywheel this durable.
For the first time, the tournament uses dynamic pricing, ticket prices that float with demand, like airline fares. The contrast with the last US-hosted World Cup is brutal.
In 1994, a World Cup ticket ran $25 to $475. In 2026, the floor is $60, roughly in line with inflation. But the ceiling has detonated: $6,730 for the final at list, with premium seats that opened there climbing past $32,000 by May.
The cheap seats held. The expensive ones went up as much as 70×.
Some estimates put the average 2026 World Cup ticket around $1,300. That implies an increase of about 1,000% after inflation compred to 1994. Real median household income over the same span rose just 32%.
Football is the most popular sport on earth, played and followed by people of every income level. The World Cup carries public and national meaning, and pushing prices out of reach can erode its cultural value. The asset that makes the rights so valuable is football’s universality — and pricing out ordinary fans threatens exactly that.
FIFA pushes this hard for a reason. This is likely the last men’s World Cup on US soil for decades. FIFA’s own budget projects that hospitality and ticketing will decline by $938 million in the 2027-2030 cycle, even as total revenue climbs. The 2026 gate is a peak FIFA doesn’t expect to see again.
The backlash arrived on cue. New York and New Jersey attorneys general have subpoenaed FIFA over its ticket practices. Meanwhile, host cities like Boston and Kansas City are covering tens of millions in security and transport while FIFA keeps the upside at the gate.
Cities take the bet for a reason. Each US host is promised between $160 million and $620 million in local spending from visiting fans, plus local jobs and a month in the global spotlight. A summer of full hotels and busy restaurants is real money.
But the payoff may not arrive as advertised. Victor Matheson, a sports economist at Holy Cross, calls FIFA’s projections closer to a press release than serious analysis. Much of the spending that does show up may have simply shifted from somewhere else. For an economy of America’s size, the whole tournament barely registers, well under 0.1% of GDP.
The controversy goes beyond prices and public costs. Human-rights groups have also warned about risks around immigration enforcement, policing, freedom of expression, and the treatment of local communities during the tournament. FIFA markets the World Cup as a global celebration, but the 2026 edition arrives with a heavier political backdrop than usual.
A major growth driver for FIFA has been the 2025 Club World Cup. FIFA expanded it to 32 teams and staged it in the US, creating a second marquee event to smooth the four-year sawtooth.
The $1 billion Women’s World Cup revenue target in Brazil in 2027 points in the same direction: more global events, more premium pricing, and more predictable revenue between men’s World Cups.
Takeaway: The 2023-2026 cycle is where FIFA became less dependent on a single event and more like a portfolio of scarce global sports rights. But maximizing revenue comes with controversy. Teams collect record checks. Fans are asked to pay more. FIFA may keep finding new ways to monetize football, but its own brand could be the one paying the price.
That’s it for today!
Happy investing!
Thanks to Fiscal.ai for being our official data partner. Create your own charts and pull key metrics from 50,000+ companies directly on Fiscal.ai. Save 15% with this link.
Disclosure: I do not own any stock discussed in this article in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-06-09 20:03:29
Welcome to the Premium edition of How They Make Money.
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That’s more than what the largest IPO in history will raise.
SpaceX is about to price the largest initial public offering ever at $75 billion, valuing the company at ~$1.8 trillion. But Alphabet, the parent company of Google, quietly topped that last week by selling new shares — upsizing a planned $80 billion raise to $85 billion after demand poured in. Berkshire Hathaway anchored it with a $10 billion investment, buying shares at a 6–8% discount.
Here’s the paradox. Alphabet sits on well over $120 billion in cash and short-term investments on its balance sheet, just generated $165 billion in operating cash flow last year, and can borrow at rates few companies on earth can match. Firms in that position almost never sell equity. Instead, they use their cash flow to buy back stock. Diluting your own shareholders is the most expensive money there is, a slice of every future dollar of profit, forever.
So why do it? Because the AI buildout has grown so large it requires every available tool. Alphabet expects to spend $190 billion in 2026 alone, and that figure could increase by year-end.
Every company racing to build compute now stands in front of three doors:
Pay with the cash you already generate.
Borrow it (issue debt).
Sell a piece of the company (issue equity).
Each door sends a different signal about how confident you are and how much risk you are willing to take (more on this in a minute).
Today, we are looking at the three ways Big Tech is currently funding the trillion-dollar AI buildout. We’ll review which ones are good or bad for investors and what it says about where we are in this market cycle.
💵 Self-funding
🏦 Debt issuance
📉 Selling more stock
The cleanest way to fund a data center is to pay for it with money the business already makes. No interest, no dilution, no banker fees. For most of this cycle, that’s exactly what Big Tech did.
If you need a reminder, free cash flow (FCF) is the cash generated from the business, less capital expenditures (funds to buy, upgrade, or maintain physical assets). As long as FCF is positive, you are effectively self-funding your business ventures.
Free Cash Flow = [Cash from Operations – Capital Expenditures]Amazon is the textbook case for how far that model stretches. The company is on track for roughly $200 billion in capital expenditures in 2026, up from a trailing-twelve-month figure of $147 billion (+67% Y/Y).
Meanwhile, trailing-12-month operating cash flow grew to $149 billion (+30% Y/Y) at the end of March. It’s a staggering number that, a few years ago, would have funded the whole thing with room to spare. It no longer does.
Amazon is now spending essentially every dollar it generates. It was already the case in 2021 and 2022, when the company invested in fulfillment to meet pandemic-driven demand. As a result, FCF turned slightly negative in 2021 and 2022. FCF recovered to a record $38 billion in 2024 before the AI buildout cut it to $11 billion in 2025
At the end of Q1 2026, trailing FCF worsened to just ~$1 billion.
“The faster AWS grows, the more short-term CapEx we’ll spend.”
That was CEO Andy Jassy on the Q1 call, and it captures the squeeze. AWS reaccelerated to +28% Y/Y, its fastest in nearly four years, but Amazon has to lay out cash for land, power, chips, and servers 6 to 24 months before it can bill a customer. Growth and free cash flow are pulling in opposite directions.
Self-funding is a position of strength: you don’t need anyone’s permission to build. The catch is that it caps your spend at what the business produces today. The AI bill is now testing that ceiling everywhere. Microsoft, Meta, and Alphabet still fund most of their CapEx from existing operations. The open question is what happens when one great business can no longer feed an even hungrier one.
Takeaway: Free cash flow is the cheapest capital and the proudest signal — it says the core business can pay its own way. But when CapEx consumes more than 100% of operating cash flow, the wallet is empty, and the next dollar has to come from somewhere else.
2026-06-06 22:02:53
Welcome to the Saturday PRO edition of How They Make Money.
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📊 Monthly reports: 200+ companies visualized.
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Today at a glance:
📈 Broadcom: AI Bookings Triple Shipments
🖥️ HPE: AI Demand Pulls Forward
🧑⚕️ Veeva: Falcon Targets Agentic Labor
🌐 Samsara: Operational AI Scales
🔷 Rubrik: Agentic Cyber Resilience
🧘🏻 Lululemon: Turnaround Stalls
🛠️ GitLab: AI Pivot With Layoffs
Broadcom's Q2 revenue rose 48% Y/Y to $22.2 billion ($70 million beat), with non-GAAP EPS of $2.44 ($0.04 beat).
Semiconductor solutions as a whole grew 79% to $15 billion, driven by AI semiconductor revenue, which jumped 143% Y/Y to $10.8 billion.
Infrastructure software grew 9% to $7.2 billion.
Operating margin hit a record 49%, and free cash flow reached $10.3 billion (46% of revenue). Shares still fell nearly 15% post-earnings, giving back most of the $270 billion in market cap added over the prior five sessions.
Broadcom is seen as a major beneficiary of Google's announcement earlier this week that it is raising ~$85 billion in equity to fund its AI infrastructure buildout. Google is one of Broadcom's six core custom XPU customers.
For Q2, Broadcom’s headline metric was order velocity. AI semiconductor bookings exceeded $30 billion, roughly three times what the company shipped, with CEO Hock Tan saying “our visibility runs all the way to 2028.” AI networking accounted for nearly 40% of AI revenue, though Tan expects this to normalize toward 30% as custom XPUs ramp.
Expectations were sky-high ahead of the print:
Q3 AI semiconductor guidance of $16 billion implies a 200% Y/Y growth, but it missed the $17.2 billion buy-side estimate.
Tan implied full-year FY26 AI revenue of around $56 billion, which was short of the $57.6 billion consensus.
The $100 billion FY27 AI target was reiterated during the call, but not raised.
Multi-year customer commitments are real but back-end loaded into late FY27 and FY28.
Broadcom announced major customer-specific deployments:
1.3 GW for OpenAI in 2027 (part of a 10 GW deal through 2029).
3 GW for Meta through the end of 2028 (with the first 1 GW starting in H2 2027).
A $35 billion debt financing deal with Apollo and Blackstone to fund Anthropic's purchase of Google TPU chips that Broadcom helped develop, with Broadcom backstopping the largest portions of the transaction. The arrangement is part of a broader AI XPU Platform targeting 20+ GW of LLM compute capacity through 2028.
Broadcom guided Q3 revenue to $29.4 billion (vs. $28.47 billion consensus), with semiconductor revenue at $20.5 billion (up 124% Y/Y).
The sell-off was primarily about Broadcom failing to raise its $100 billion FY27 AI revenue target, compounded by Tan acknowledging that Google will diversify its TPU supply. Investors are left wondering whether management is staying cautious to set up future beats or whether the strength in bookings is already priced in.